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Dec 1, 2009

Solar Electric Feed-in Tariffs or is Home Solar Electric profitable?

This blog article from Reuters is great for debating particulars of whether or not alternative energy pays for itself and whether wind or solar is the way to go.

We put some of the best blog replies in the next post.

Feed-in tariffs are VERY slowly gaining space in America's energy policy. But we are quite far behind the Germans. The feed-in tariff program would make such sense for the sunbelt of the USA. Not sure what the hold up is?

The phrase “catching a few rays” might conjure up images of lying on a sunny beach.

But Germany’s Renewable Energy Act has given that phrase a whole new meaning. I’ve discovered that you can get paid for capturing the sun’s energy on your roof, converting it into CO2-free electricity with the help of special equipment, and feeding it into the grid — and watch the investment yield handsome long-term returns.

The German feed-in tariff system is as simple as it is successful – which is probably why Germany produces as much solar power as the rest of the world combined. German utilities are obliged under the Renewable Energy Act to pay above-market feed-in tariffs to producers of photovoltaic or wind energy for a period of 20 years. Germany will add up to 3 gigawatt of PV electricity this year.

Here’s how the system works.

Two years ago, after writing this feature on why Germany leads the world in photovoltaic electricity production despite being covered by clouds half the time, I decided to crack open my piggy bank and borrow some money on top of that to invest in a modest 6.8 kWp solar power system for my roof (below left). I added a carport (above right) so that I could put up more solar panels.

The system cost a total of 30,000 euros and it produces about 5,000 kilowatt hours of electricity each year. More importantly, that saves about 2,700 kg of CO2 emissions. The 5,000 kWh is about 500 kWh a year more than we use. The local utility is required to buy those 5,000 kWh of CO2-free electricity that spin through a meter and into the grid from me at 49 cents per kilowatt for a fixed 20-year period. I buy about 4,500 kWh back each year at the current market rate of about 18 cents per kWh. That amounts to about 2,400 euros of revenue per year, with monthly payments from the utility peaking at about 500 euros in June. (I pay a separate 70 euros per month to the utility for the electricity we use).

I got such a buzz from watching the meter spin green energy off the roof and into the grid that I asked myself: Why stop there? I started looking for another roof.

The national feed-in tariff the utility pays for each kWh of green electricity I pump into their grid fell from 49 to 46 cents in 2008 but the price of solar panels fell even further.

So I borrowed 40,000 euros from a bank and rented the roof of a local kindergarten (below) in late 2008 to build an even larger PV system – 10 kWp that produces about 9,000 kWh per year (saving nearly 5,000 kg of CO2). That brings in about 3,900 euros per year that will pay off the bank loan over about 12 years.

After that, I asked myself again: Why stop now? The feed-in tariff fell to 43 cents per kWh in 2009 but the price of solar panels fell even further. So I borrowed an additional 80,000 euros and rented the roof of a local school’s gymnasium (below right) – 20 kWp producing about 19,000 kWh per year (cutting 10,000 kg CO2) and yielding some 8,200 euros. Revenues from the utility also go directly to the bank to repay the loan.

I was hoping to rent another school roof in Berlin this summer but there were all sorts of bureaucratic snags and the project was scrapped. But in 2010 – even though the feed-in tariff will fall to 39 cents for the 20 years to 2030 – I’m hoping to find another roof for an even larger system.

There’s no getting rich quick using this business model, but it is eliminating a few tonnes of CO2 each year and the loans will have been paid off in little more than a decade.

The feed-in tariff for new systems will probably fall by about 10 percent each year and the price of solar panels will probably keep falling at a similar rate. By about 2015, it’s quite possible that the feed-in tariff utilities pay will have fallen to the same level as cost of conventional electricity — the magic “grid parity” point.